Three gas stations are all located on the same corner of a busy intersection. Ea
ID: 1126343 • Letter: T
Question
Three gas stations are all located on the same corner of a busy intersection. Each gas station is equally easy or difficult to turn into, and each has the same number of pumps: Gas Station X has a very tall sign out front where they display the current fuel prices in a very easy to see manner Gas Station Y has a sign out front that is not as easy to read, because it has both fuel prices and other sales promotions on it. Gas Station Z only has a small sign that sits on the ground. The sign has the company name on it, not the current price of fuel or any other information. Assuming that each company was able to select their style of sign, describe what each company assumes about consumer responsiveness to their product? Hint: Think about the information that consumers have and when they receive it. Why would three gas stations choose to locate right next to each other? Describe the strategy behind this decision for the 2nd and 3rd gas stations that choose this location. Define any concepts from the course used in your explanation.Explanation / Answer
In this scenario though each company was able to select their style of sign but consumers make choices based on their belief & experience. To reach consumers information must be available at appropriate time & place & whether it is helpful in fulfilling their need. As in the case of gas stations consumers already possess some information regarding companies & they know that all companies offer nearly identical products its not difficult for them to make a choice.
Gas stations X, Y & Z will choose to locate next to each other because of clustering phenomenon which can be explained by Game theory.
Since the gas stations are not a monopoly they have to attract consumers to run the business. Therefore this competition forces them to choose a location that captures maximum market share with lower costs. Each competitor acting as independent assessor is examining the situation which will maximize their profit & lower the operating costs. In doing so they arrive at Nash equilibrium which results in a cluster.